The TSX is likely due for a pullback after rallying 30% in the past year. Investors who missed the surge are wondering which Canadian dividend stocks might be good to buy on weakness for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Royal Bank of Canada

Royal Bank (TSX:RY) is up more than 55% in the past 12 months. The stellar rally occurred as investors started to move back into top bank stocks after market sentiment shifted from fears of additional interest rate hikes to expectations of interest rate cuts.

Interestingly, higher interest rates are normally good for banks due to the larger net interest margins that can be earned. However, the sharp rise in interest rates in Canada and the United States that occurred over such a short period of time also put pressure on borrowers with too much debt. Royal Bank and its peers increased provisions for credit losses (PCL) to prepare for a potential surge in defaults by customers who were struggling to cover the increase in interest expenses.

Now that the Bank of Canada and the U.S. Federal Reserve have started to reduce interest rates, borrowers should get some breathing room, and PCL is expected to decline in the coming quarters. In fact, Royal Bank already reported a decline in PCL in the fiscal third quarter (Q3) of 2024 compared to fiscal Q2 2024.

On the revenue side, Royal Bank completed its acquisition of HSBC Canada earlier this year. The purchase gave fiscal Q3 2024 pre-provision, pre-tax earnings a $412 million boost. Royal Bank finished fiscal Q3 2024 with a common equity tier-one (CET1) capital position of 13%. This means the bank has ample excess cash to make additional acquisitions or return more cash to shareholders through buybacks and dividend growth.

Royal Bank is a giant in the Canadian market and ranks among the top 10 globally based on market capitalization.

TC Energy

TC Energy (TSX:TRP) is up about 35% in the past year after an extended slide in 2023. Lower interest rates are at play in this case as well.

TC Energy uses debt to fund its large growth programs. The surge in borrowing costs through the back half of 2022 and the first three quarters of 2023 largely drove the stock's decline from $74 in June 2022 to $45. Expectations for rate cuts in 2024 attracted bargain hunters last fall, and the realization of rate cuts in recent months fuelled the extension of the rally. Lower borrowing costs will reduce debt expenses and can free up more cash for dividends or debt reduction.

TC Energy completed its $14.5 billion Coastal GasLink pipeline in late 2023. The budget came in more than double the initial plan, so TC Energy sold interests in some non-core assets to shore up the balance sheet to enable it to pursue the rest of the capital program, which is expected to be about $6 billion per year over the medium term. TC Energy also successfully completed the spin-off of its oil pipelines division to help unlock value and position the company to move ahead with growth initiatives.

TC Energy has increased the dividend annually for the past 24 years. At the time of writing, the stock provides a yield of 6%.

The bottom line on TSX dividend stocks

Royal Bank and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar during the next market pullback.